Since Warren Buffett announced that he would step down as CEO of Berkshire Hathaway (BRKA 0.46%)(BRKB 0.34%) at the end of 2025, the entire stock market has been speculating on what changes could be coming to the conglomerate.
Buffett appointed Greg Abel as the new CEO after Abel spent many years running Berkshire Hathaway Energy. Abel has big shoes to fill and acknowledged as much in his first annual letter to shareholders.
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Berkshire stock commanded a certain premium, given that most people believe Buffett is the best stock picker of all time. Abel is clearly more than capable of running Berkshire and was hand-picked by Buffett, which should give shareholders some assurances. However, he has a long way to go to earn the same premium and loyalty that his predecessor did.
This has led some investors to believe that Berkshire may operate differently under Abel -- for example, by distributing more capital to shareholders. Is the company about to start paying a dividend? He just provided a clue.
Not in the near term, but not off the table
Berkshire has generated tens of billions in earnings and tremendous free cash flow, but when asked in the past why his company never used that for a dividend, Buffett consistently said he believes he and the company could invest the capital more effectively and generate higher returns for shareholders. With a track record like Buffett's, few have argued.
But as I mentioned, Abel does not yet have that same luxury. Many actually suspected that the reason Berkshire has hoarded $370 billion of cash and short-term U.S. Treasury bonds was to start Abel off from a position of strength and allow him to begin paying a dividend.
NYSE: BRKB
Key Data Points
In his letter to shareholders, Abel wrote: "Our approach to cash dividends continues to be that Berkshire will not pay dividends so long as more than one dollar of market value for shareholders is reasonably likely to be created by each dollar of retained earnings. On an annual basis, the Board reviews our policy."
He is essentially echoing Buffett's policy that the company can create more value for shareholders on its own than by distributing dividends. The jury remains out, but I still think shareholders should give Abel and the Berkshire team the benefit of the doubt because they have played a tremendous role in Berkshire's success, and likely even more so as Buffett has gotten older.
However, Abel still left the door open to a dividend when he wrote that the board of directors reviews this policy every year, so it's not off the table. But we now know that the new CEO wants to first see if he and the Berkshire team can continue to replicate the magic the company has had for decades by not paying a dividend.
